How AI-Powered Supplier Relationship Management Can Unlock the Hidden Value of Procurement

As a procurement professional, how do you approach supplier relationship management (SRM)? Do you have a structured, data-driven program in place? Or do you find it difficult to work with suppliers and make sense of a lot of unstructured data?

But first, what is it about SRM that makes it so difficult yet crucial for procurement and the larger business?

To understand this, let’s look at procurement’s evolution from a back-office function to a strategic business unit in a short period of time. Increasingly, procurement teams are expected to deliver on additional responsibilities and add more value to the business.

This wasn’t the case sometime ago, especially when businesses were dealing with unforeseen events and disruptions.

While procurement teams in many enterprises crumbled under pressure in the face of widespread disruptions and supply chain bottlenecks, a few managed to efficiently carry out operations.

What did these teams do differently from others to survive this period of uncertainty?

The answer is straightforward. They built strong relationships with their suppliers.

Procurement organizations as well as larger businesses that have succeeded in this endeavor have mitigated potential risks and outperformed their competitors.

In fact, the highest performing procurement teams over the past few years have been those who have built true partnerships with their key suppliers, says Scott Goodfellow, senior manager - supply chain consulting at GEP, in a recent Procurement Magazine article.

Instead of focusing merely on reducing costs, these teams have co-invested in solutions and mutual growth plans, he adds.

Clearly, there seems to be a guaranteed formula for businesses to succeed in an increasingly uncertain and disruption-prone environment. And that is an effective supplier relationship management program.

Working Toward Common Goals

To successfully implement a SRM program, procurement must work in close coordination with suppliers. It is important to begin this program with a clear mindset. At the outset, both parties need to sit together to discuss and align their individual goals. The key to partnering with suppliers is to find common ground on achieving goals.

For example, by helping suppliers improve their real-time data collection of carbon emissions, organizations can make real progress on tracking and reducing their environmental impact while at the same time increasing visibility, reducing risks and costs and driving competitive advantage, explains Goodfellow.

Both parties also need to explicitly define the metrics against which supplier performance will be evaluated.

For example, KPIs can include quality, cost, lead times, sustainability and compliance with regulations.

It is also important for procurement to identify key suppliers. Instead of looking at all suppliers or segmenting the supplier base by spend alone, it should focus on suppliers who are most critical to the supply chain or those who can partner and add more value, says Goodfellow.

High-Quality Data is Key to Successful Implementation

Access to reliable, granular and frequently updated data is vital for successful implementation of a SRM program. Without high-quality data, a business cannot set targets, accurately measure performance or identify specific areas of improvement.

Often, businesses make the mistake of setting up a fancy SRM system that doesn’t benefit from the key data that should feed it, says Goodfellow. This means that data, though collected from multiple sources, remains unused.

For example, an EU-based medical technology firm plans to level up its supplier discussions with insights from different procurement activities – from sourcing and contracts to purchase orders, invoices as well as operational data from internal stakeholders. To succeed, it needs to bring together all data in a structured format and then access this data in an environment that enables advanced analytics.

In addition to a data-driven approach, procurement must adopt AI-powered technology to unlock the next level of value in SRM systems, says Goodfellow.

“AI-enabled point solutions allow more streamlined data interfaces, helping large multinationals with complex IT landscapes to unify datasets and bring together insights across operational, commercial and supplier data,” he says. These insights can help procurement improve outcomes during negotiations, share knowledge and grow strategic partnerships.

By bringing together data from multiple sources and breaking it down to derive useful insights, AI can give procurement complete control of all supplier and item data and improve data quality with rigorous and proactive master data management. Ready, real-time access to clean data helps avoid expensive errors born out of data inaccuracies and duplication.

Conclusion

While supplier management continues to be a key responsibility for procurement, the use of advanced technology can simplify this task and align it with strategic objectives.

An effective SRM program, which leverages digital tools and analytics to make sense of complex datasets, can transform procurement from a back-office unit to a truly strategic function that can deliver on its routine as well as larger business goals.

Learn how GEP’s AI-powered procurement software can simplify supplier relationship management.